Russian equity undervalued, says HSBC

By: William Clarke | 28 May 2012

Russian equity is undervalued by the market at present, according to Edward Conroy, co-manager of the HSBC BRIC GIF Russia Equity Fund, which has allocated 31% to the country, its largest overweight position.

HSBC Global Asset Management is one of the largest investors in BRIC equity markets, with more than US$10,684.6m assets in this asset class as at end March, 2012.

Low valuations leave Russian equities with high levels of profitability, with the fund maintaining overweight positions in Rusal, Russia’s biggest producer of aluminium, and Phosagro, a phosphate fertiliser producer.

Conroy said: “Valuations in Russia are particularly attractive versus other markets and its own history. For example, we see deep value in the energy sector where the Russian oil industry trades at roughly a 40-50% discount to global and emerging market peers. More than a third of the top 50 BRIC ranked companies are Russian. We believe that recent political concerns have been overdone and we expect some reform initiatives which should be good for the market over the medium term, overall the opportunity for upside looks favourable.”

Strong earnings forecasts and attractive valuations has bolstered the case for robust returns from across the BRIC markets in 2012, provided key risks are avoided, according to HSBC Global Asset Management.

Nick Timberlake, head of emerging market equities and lead manager of the HSBC GIF BRIC Equity Fund, said: “The compelling fundamentals of these regions remain the same, with the collective BRIC nations notching up a population of more than 2.7billion people and rising, this represents some 40% of the world’s population.

“The region is rich in mineral reserves including iron ore, aluminium, copper and gold and also in available land for agriculture. Rising affluence across the BRICs means domestic consumption remains a primary driver of intra-BRIC market trade and these nations are becoming less and less dependent on the developed world.